Observers say HDB lease top-up proposal has long-term drawbacks

Victor Kang18 Dec 2019

HDB & sunset

A one-time automatic lease top-up for old HDB flats might address the problem of their declining value once their leases expire, but it will bring long-term drawbacks, say observers, reported The Straits Times.

The warning came as a response to the proposal of veteran architect Tay Kheng Soon, property consultant Ku Swee Yong and economist Yeoh Lam Keong at a forum held at the Singapore Management University recently.

The automatic extension was one of the policies introduced by the three in what they called a “citizen’s non-partisan policy proposal” to tackle and offer solutions to key public housing problems.

However, Nicholas Mak, ERA Realty Head of Research and Consultancy, warned that topping the leases of HDB flats owned by Singaporeans back to 99 years once they get to 50 years would be “a handout that is extremely hard to stop”.

Mak said that such a policy must run in perpetuity as issues may arise if it is ever shelved.

As an example, he described a scenario where if the government decided to end the automatic lease extension in 2021, home buyers who purchased an HDB flat in 2020 would receive a 149-year lease, while those who bought in 2021 would only get a 99-year lease.

“Can you imagine the level of unhappiness among the later buyers? The extension is just kicking the can down the road,” he said.

MOP extension will destroy resale price: Economist

As part of the proposal, the trio also said that all new Build-To-Order (BTO) flats be sold at around construction cost to first-time buyers, with the present five-year minimum occupancy period (MOP) extended to 15 years.

However, nominated MP and economist Walter Theseira had qualms with the proposal, as this deviates from the “status quo” of the country’s home ownership model, where owners hope to profit when they sell their flats. He said that the proposal will bring the valuation of HDB flats to construction-cost pricing. 

This would affect those who see their flats as retirement assets. Around 80% of Singapore families live in HDB flats.

RECOMMENDED ARTICLE: The decaying HDB lease. Myth or reality?

WP’s ‘Lease Back’ scheme also flawed?

In a report released last month, the Workers’ Party (WP) also proposed a Universal Sale and Lease Back scheme covering HDB home owners who have finished the minimum occupancy period and paid at least 80% of their loans.

This would make HDB the “buyer of last resort” for owners who may be unable to sell their properties.

Flats purchased by the government can then be resold with shorter leases or offered via a proposed Public Rental Market scheme.

But Mak was apprehensive of the proposal as it would effectively turn the government into “a major landlord”.

“Right now, most people own their remaining leases on their HDB flats and enjoy tax-free appreciation of the flats when they sell. But it won’t be the case if it becomes a rental situation,” he said.

“Furthermore, if you can get cheap rental flats, will it make people want to work harder?”

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Victor Kang, Digital Content Specialist at PropertyGuru, edited this story. To contact him about this or other stories, email victorkang@propertyguru.com.sg

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